The economy : a gloomy future

The sanctions against Russia are now turning against those who initiated them. The soaring price of gas and electricity is likely to cause real riots in France. As in the UK and probably elsewhere.

March 1, 2022. Bruno Le Maire, Minister of the Economy: “The sanctions imposed on Russia are extremely effective. We are waging a total economic and financial war on Russia. We will cause the collapse of the Russian economy.”

Friday, August 19, 2022, in Bormes-les-Mimosas. Emmanuel Macron: “I am thinking of our people, who will need strength of mind to face the coming time, to resist the uncertainties, sometimes the ease and the adversity and, united, to accept to pay the price of our freedom and our values”.
Wednesday, August 24, 2022. Emmanuel Macron: “What we are experiencing is a great change of direction (…) the end of abundance”.

Five months after the beginning of the Russian-Ukrainian war, the official discourse has changed. There is no longer any question of playing the matamores. The economic situation no longer allows for bluster. The future looks very dark for France as well as for Europe. After the Covid-19 sanitary crisis, the summer heat wave, the catastrophic drought for crops and the giant fires, it is inflation that is inviting us back to school in 2022. And more precisely, the vertiginous rise in gas and electricity prices which we wonder if households and companies will be able to pay the bills.

Bills will explode

It is true that Macron has invited the French “to be energy sober”. But prices on the markets have soared to such an extent that no one knows where they will stop.
In Rotterdam, at the end of August, the MWh of gas was trading at €320 (compared to €15 just a few months ago). As for the wholesale price of electricity, it has literally soared from 85 MWh a year ago to €1,000 today. And it’s not over yet, as purchases for December 2022 are already trading at €1,600 per MWh.
This means that the bills will explode in the coming weeks and months. With the social and political consequences that we can imagine.

UK: two-thirds of households in precariousness

And it is not going to get any better, since Russia, the leading supplier of gas to Europe, and particularly to Germany, is going to reduce its deliveries in retaliation for the sanctions imposed on it. Deliveries via the North Stream1 pipeline will be halted for three days at the beginning of September. And it is not known whether they will resume. Many countries use gas to produce electricity.
The Germans have already announced a drastic plan of energy restrictions: limiting heating to 19° in public buildings, no more heated swimming pools, etc.
In the United Kingdom, regulated energy tariffs will increase by 80% from October, according to OFGEM, the British regulator of the sector.
Two-thirds of UK households will be plunged into insecurity. Unions are expecting an explosion of violence.

The French nuclear fleet is failing

France is less dependent than other countries on Russian gas, about 17% of its consumption. But this is still not negligible. Especially since the French nuclear park, which should in principle guarantee us a relative energy autonomy, is failing. Corrosion problems in the pipes have forced the shutdown of 24 of our 56 reactors.
Consequences for consumers? Bills in strong increase that the State will try to compensate thanks to the renewal of the tariff shield which, since October 1st, 2021, freezes the scales of the regulated tariffs.
Is this enough? Not necessarily. Everything will depend on the continued rise in gas and electricity prices on the European market, but also on the severity of the winter. It is true that, according to the European platform Agregated Gas Storage Inventor (AGSI), France has filled more than 90% of its gas storage capacity. This is enough to cushion the shocks and avoid major shortages this winter. But prices will continue to rise. The Russian-Ukrainian war is far from over.
The future remains dark. Even very dark.

Ukraine : The boomerang effect of Russian sanctions